JON SOPEL: Prime Minister, here we are at the World Economic Forum and a lot of gloomy talk here, so let me be direct. Do you believe that the British economy is going to slow down this year?

GORDON BROWN: The growth rate of the British economy will be roughly, as Alistair Darling has predicted, which is lower than last year but probably one of the fastest growing of the G7 countries. And the issue for us is actually, that we can maintain stability and growth, over what is basically turbulent times for the world economy.

And the turbulent times started in America, there are issues about the financial institutions and the reporting that they did both of off balance sheet activities and now the write downs; that has spread through to the rest of the economy, so it's essentially a financial system problem that is affecting the rest of the economy and our aim throughout has been to try and protect and insulate as much of the economy from it as possible and that's of course why we acted in relation to Northern Rock, in the way we did, to prevent the problems of Northern Rock spreading, but that's why at all times, our first priority was, as a low inflation, low interest rate economy, is to maintain stability, so that we can then continue to have growth.

JON SOPEL: But we've heard the Bank Governor saying, we're probably facing a period of above target inflation and a marked slowing in growth. Do you believe it will be a marked slowing?

GORDON BROWN: Well, that's - last year growth was 3.1%. Growth, as Alistair Darling has said, will be lower this year. Inflation is of course, affected by what's happening to food prices and oil prices and commodity prices. Look, if you've got a 60 to 80% growth in oil, coal and gas prices, it's bound to affect the rest of the economy.

But what the Governor also said is he thought that just as there could be a rise in inflation during the first part of the year, he thought we'd be coming down and could be at the inflation target at the end of the year, and that's 2%.

Now, at the moment, inflation is 2.1%, in America it's 4%, in the Euro Area it's 3%, so it has been an achievement to get inflation down; difficult, because we had to make difficult public sector pay decisions, but the economy depends on being able to cut interest rates, through having low inflation.

JON SOPEL: Do you think there's a risk, because we've heard people like George Soros, here, in the past few days (interjection)

GORDON BROWN: I think George Soros is actually talking about America. I think what he's saying is that the American economy. Look, there are probably one and a half million homes in America, who are affected directly by what's happening in the mortgage market. Probably for them, because short term mortgage rates have changed, the rates have gone up by 20 to 30%, so there will be a lot of repossessions in the States. The housing market is... He's worried about what's happening there. Now in Britain, we are saying, as you know, that inflation is low, interest rates are low and we expect there to be growth.

JON SOPEL: No risk of a recession then.

GORDON BROWN: Well, we expect there to be growth. I wouldn't (laughs) I wouldn't say that, that with low inflation, with low interest rates, we expect the economy to be more stable and growing, but undoubtedly, we are effected by what's happening in the rest of the world.

JON SOPEL: I want to keep this focused on what's happening in Britain, and people watching this, because I wonder whether they think that they live in a low inflation economy when they see what's happened to annual food price inflation - 7.4%: petrol products rising by 20%, rail fares for example, up by nearly 7% (interjection)

GORDON BROWN: It's all the more remarkable that inflation generally is low, when you have, as everybody acknowledges, rising food prices round the world and rising oil and commodity prices. So nobody is trying to suggest that we haven't had a big problem with oil prices. Oil prices have hit almost 100 dollars. Nobody is suggesting we don't have a problem with food prices, because round the round, because of bad harvest, because of other factors at work - demand and supply, food prices are growing. Now, it's therefore remarkable, but unlike the '70s and the '80s and the '90s (interjection)

JON SOPEL: Would you expect spending to slow down as a result of these increases.

GORDON BROWN: ¿ let me finish, because, because you know in the '70s and '80s and '90s, you're talking in the '70s and '80s about 20% rates of inflation. Even in the last recession in the early '90s, inflation went to 10%. Inflation at the moment in Britain is 2.1%. Now that is accepting that there are problems with oil and gas and coal prices and this problem with food prices, what we have tried and I, I just say to you by difficult decisions, including the staging of public sector pay awards, which is not popular, something I did not want to do, but it's helped us keep inflation low and made us better prepared and better protected for the difficult times we're facing in the world economy.

JON SOPEL: Do you think that British consumers will be spending less this year.

GORDON BROWN: Well, that's a matter for British consumers. I mean...

JON SOPEL: But that's been the engine of growth.

GORDON BROWN: interest rates, no, if you look at the engines of growth of the British economy, the engines of growth include what we've had over the last period of time, rising investment and rising exports, as well as consumer expenditure. The important thing to remember is that we want, by having low inflation and low interest rates, to keep the economy moving forward, and that is what will enable consumers to continue of course, to maintain a level of consumer spending growth.

JON SOPEL: Let me turn to the upheavals in your government, in your cabinet this week. While we're presented with clear evidence that Peter Hain hasn't complied with the rules and it has taken him four months to do so, something you called an incompetence, and there was a rather odd think tank that had been set up, did you do nothing.

GORDON BROWN: I said er, at the beginning that we'd wait till the Electoral Commission reported, before we made a judgment and that's what we did. The minute the Electoral Commission told me that - and told Peter Hain in fact, that they were referring the matter upwards, he resigned and the changes were made in the government.

JON SOPEL: So you said something interesting there. Was that his decision or your decision that he should go.

GORDON BROWN: It was Peter Hain's decision. He wrote to me and said that he was resigning.

JON SOPEL: You just said that when you heard

GORDON BROWN: (interjection) when I heard and he heard, he resigned.

JON SOPEL: But didn't give the impression that given the fact that you had talked about this incompetence of two weeks ago, if you thought it was 'an incompetence' and he hasn't declared, then it would have been far better. You would have been, looked like a master of events, rather than (interjection)

GORDON BROWN: But let's see what the police investigation leads to because that is what, and I can't comment really on it now. But in my, in my view, from what I've seen, there was a late declaration, there was - papers that came in late about donations that were made, but there's no evidence of corrupt practices and there's no evidence of foreign donations, which is what has beset other political parties, in the past; there is no evidence of that. But let's see what the police investigation
(interjection)

JON SOPEL: I don't want to talk about the police investigation. The charge that's been made is that you dithered.

GORDON BROWN: I didn't at all. I said I was going to wait until the Electoral Commission reported. When the Electoral Commission reported, Peter Hain resigned and we took the decisions immediately, about the new changes we'd make in the Cabinet and I think they were announced within an hour or two.

JON SOPEL: There was as lot of talk about moral compass when you took over. Six months in, you've lost a Cabinet Minister, you've lost a General Secretary, there are two police investigations, a cloud over the leader of the party in Scotland and a cloud over your deputy.

GORDON BROWN: Well my moral compass is my belief that we can help individuals realize the potential. It's about my moral compass that people have talents to offer and we must help people make their contribution to society. If people make mistakes, as happened in the case of the Party General Secretary, he resigned, he left. If Peter Hain is under investigation, the Electoral Commission has said that that is the case, he has resigned. But I think we should just get on with the business of government now because it's for the proper authorities now, to deal with these issues.

JON SOPEL: That is think about it, six months in, that you've got, had this whole pile of you know, funding scandals and all the rest of them.

GORDON BROWN: No, I think, I think everybody knows that the, the political fundings scandal that has gained most attention, has actually been something that happened long before I was Leader of the Labour Party. I think

JON SOPEL: But clear rules have been broken while under your watch.

GORDON BROWN: Well, I think - if I had known they were being broken, I would have taken action would I not. And the minute I knew that they were being broken, action was taken and the minute action was taken, we had a - the resignation of the party General Secretary and we had the inquiries that have been set up, and we are determined and that is what I have been determined to do, to have a more open, more transparent party political funding system, changes in the electoral laws to make that possible. I've made my proposals, I want other parties to accept them, and I want to see this openness and transparency in the electoral system for the future. Now that what I'm aiming to achieve and that's what makes me suggest the things that I want to achieve.

JON SOPEL: I want to ask you one more question about Peter Hain. He said he wants, he's going to fight to clear his name. If he does clear his name, will you welcome him back in to the Cabinet.

GORDON BROWN: Well, that's a matter for, for later and I'm not going to speculate about what's going to happen in the future. What I do say is that Peter Hain was a successful Minister, he did a great job in Northern Ireland, he was doing a good, very good job at Work & Pensions, and I don't think people are criticizing his record as a Minister at all. But what happens with investigations is for these investigations to take their course.

JON SOPEL: Sure, but if he cleared his name, would you welcome him back.

GORDON BROWN: I've just, I've just said, these investigations have got to take their course. He was a very good, and has been a very good Minister.

JON SOPEL: Well, I think you were due to share a conference with Peter Hain, on Monday, on the subject of welfare reform, but it's now going to be James Purnell. Isn't that going to slow up the whole process of welfare reform.

GORDON BROWN: No, because we're, we're on a course of action that I think James Purnell has talked about in the last day or two, which is exactly similar to the policy that we've been working on over these last few months and in some of these initiatives, James has already been involved, when he was Culture Secretary. Look, what is the issue facing Britain? In 1997, the problem was lack of work, so we had to get millions of people back in to work and create three million jobs. What's the problem now?

The world has changed. The problem now is lack of skills. What's preventing people getting work in the future, is that they are not employable because they don't have the skills. If you go to China and India, as I was a few days ago, you can see that even China and India, are moving up the skills league. So we have got to get those people who are at the moment unemployed or inactive and young people who are at school, they have now got to have the skills, so our policy has got to change.

JON SOPEL: So, how do you do that.

GORDON BROWN: Our policy changes because ten years ago we said look, if you're not prepared to work, we're going to make sure you do work before you get any benefits, you've got to sign up to a condition to work. Now, people will have to sign up to a new condition and the condition is they're prepared to get the skills for work as well. So you can't sit around and do nothing.

You've got to look at what the skills you can offer are. If you are unemployable because you've got no skills, we will give you a skills check, we will give you help to get the skills. If you're a young person, we want to get you on to an apprenticeship or a junior apprenticeship. If you're an adult, we want to get you basic skills that you may never have had before. So the world has changed and so the condition of getting benefit moves from simply that you're prepared to work, which we've enforced, regular (interjection)

JON SOPEL: So a carrot and stick.

GORDON BROWN: Carrot and stick and if the - the carrot is, you've got to sign up for skills as well as sign up for work. You've got to be prepared to undergo training and be ready for work, because otherwise an employer may not accept you. The carrot however is, we've got hundreds of employers now, prepared to take people who are prepared to go that first stage of getting basic skills, prepared to take them on.

Two hundred at least have signed up, three hundred thousand jobs probably available from it and the British people who are trying to get these skills, ought to be in a position to get jobs, if they are prepared to get the skills for the future. So it is carrot and stick. Carrot in the sense that we will give people incentives to do it, but compulsion in the sense that it's not just a requirement for work and that you're prepared to work, it's a requirement that you're also prepared to get the skills, so that you are actually employable.

JON SOPEL: Are you worried that you've been out-flanked by the Tories on this.

GORDON BROWN: No, because I don't think the Tories are proposing anything that hasn't been proposed years ago. I mean, what we are interested is the next stage and they're not. The next stage is skills. The next stage is employability. Look, there are six million unskilled jobs in the British economy. So you don't really need a skill to do need. But by 2020, there will only be a half a million of these jobs available, so six million unskilled workers now, but only half a million will get jobs doing unskilled work in 2020.

The rest have got to be skilled. If you don't get the skills, you'll not get a job. If you get the skills, you'll earn a lot of money, that's how the world's changing. The Tory policies are all about the old days, this is about the new competition with India and China, it's about skills for the future and it's about saying to people, the compulsion will be operated not just in relation to the right to work, or the requirement to work, it's the requirement to get skills.

JON SOPEL: Right. Let's talk about somewhere else for a moment - carrot and stick where it's been rather more stick than carrot. I'm talking about the police and you stopped the police getting their pay back-dated, even though that was what was recommended by an arbitration panel.

GORDON BROWN: Well hold on, hold on. You're asking about the economy at the beginning, and you didn't actually let me finish when I was saying that we had an inflation problem in the economy of last year, we dealt with it, we had to deal with it by staging public sector pay.

JON SOPEL: Okay.

GORDON BROWN: The nurses were unhappy, so too were the prison officers, who went on strike as you know. (interjection)

JON SOPEL: Well let me finish my question

GORDON BROWN: right to strike and so too were the police. Now, that's why we had to take the action. It was nothing to do with wanting to penalize the police. I wanted to pay them more, it was only, it was only because we needed to have the low inflation that benefits every family in the country.

JON SOPEL: Prime Minister, I'm going to be an interviewer who complains that he's not being allowed to finish his questions, let alone your answers. Let me finish the question, which is, why are there only seventy thousand back room staff getting paid 2.5% and back dated (interjection)

GORDON BROWN: Because that's the

JON SOPEL: How is that fair.

GORDON BROWN: Because that's not within our control. I mean it was not a negotiation that was being done by national government in the way that the police negotiation was being done as a result of the public sector pay arbitration. Now, you know

JON SOPEL: You said that it looked unfair.

GORDON BROWN: I, I have said that when you have to deal with inflation and you've staged pay awards, as we had to do. That you can only stage the awards that you've got some control over. If you've got local authority or if you've got other forms of negotiation, then we cannot and we're not of course prepared to, operate that blanket policy of trying to sort of over-ride what was being negotiated locally.

But where we had a direct responsibility for the pay award and this was the Home Secretary's pay award, or it was the teachers, sorry, in the case of the nurses it was the Health Secretary's pay award, we felt that we had a duty to tell people - if you take a big pay rise, and that, that leads to higher inflation then the pay rise is simply eroded by the inflation that's created, and I think most people understand this fundamental arithmetic, that if you actually cause inflation by the pay rise being too high, it's totally wiped out as a result of that decision, so staging the pay award is why we're actually in a better position to face the global financial turbulence and why we have 2% inflation in Britain, where America has 4%.

JON SOPEL: Let's talk about some of the issues that the police are having to deal with. In the past week we've seen a fourteen year old girl stabbed thirty times in Chorley. Another teenager killed in North London. The trial of the boys found guilty for kicking a father to death. Is it any wonder that people are frightened to go out at night.

GORDON BROWN: And that's, that's why in the next few days we'll announce our violent crime action plan, that's why we've taken very direct action in those hot spots where much of this crime has been created.

That's why there's more under cover policing, that's why there's more intensive policing, that's why we're now using stop and search powers, that's why in some cases we're using detectors to prevent guns or knives getting in to these areas, and that's why we will do everything in our power to deal with the knife problem and deal with the gun problem and deal with the gang problem in Britain. But I think people have got to (interjection)

JON SOPEL: And that's why your Home Secretary is frightened to go out at night.

GORDON BROWN: I think everybody wants safer environments, everybody wants safer streets and everybody will fight to achieve that within our government and every police force in the country and the important thing to recognize is

JON SOPEL: (interjection) Can you

BOTH TOGETHER

JON SOPEL: Ten years of a Labour government and your Home Secretary frightened to go out at night.

GORDON BROWN: Crime is down 32%. I think when people look at these figures, crime doubled under the Conservatives. It's down 32%

JON SOPEL: I'm talking - I'm putting to you the quote from your Home Secretary

GORDON BROWN: Hold on.

JON SOPEL: she's frightened to go out at night.

GORDON BROWN:
what's happened

JON SOPEL: And you're not addressing that.

GORDON BROWN: What's happened to crime - crime is down 32% but I understand that where there are fears about crime, we've got to deal with them as well. And that's why we're moving to neighbourhood policing. You know, for years what the public have wanted is police on the beat, available for people when they need them. More accessible, more answerable, more accountable. By April this year, we will be moving to neighbourhood policing in every (interjection) community of the country.

BOTH TOGETHER

GORDON BROWN: You asked about people's perceptions

JON SOPEL: And I want to put this to you (interjection)

GORDON BROWN: I think what people want is to be able to see police on the ground.

JON SOPEL: And what - this from Helen Newlove, the wife of the murdered guy, Gary Newlove. (interjection)

GORDON BROWN: This is, this is a terrible tragic case and I think the whole country extends its condolences and sympathy to, to a widow who - you know we don't want this to happen to any family.

JON SOPEL: But I'm sure what she said will chime with a lot of viewers here. 'Until this government puts in to place an effective deterrent, the youth of today, know too well that they can get away with their actions. Why not put them in the army for a certain length of time. If they've plenty of aggression, do it through a boot camp.

GORDON BROWN: Well, fir, first of all on knives, which, which is the real, the real, one of the real issues here. The sentence for using, carrying a knife will rise to four years. The sale of knives, these are the changes we're making, the sale of knives cannot take place in a shop to anybody under eighteen. As far as knives in schools are concerned, which has been a problem, head teachers (interjection)

JON SOPEL: Knives that they're using - Gary - in the case of Gary

GORDON BROWN: I'm, I'm talking, I'm talking about all the different thing that we're doing. Head teachers will be given the power to confiscate. In the case of guns and in the case of any forms of violence, I think you'll find that the sentences are a great deal tougher, but there is an indeterminate policy that where judges or magistrates (interjection)

BOTH TOGETHER

JON SOPEL: with what Helen Newlove said.

GORDON BROWN: I know, but where judges and magistrates believe that the people are a risk to the public, they have the power of indeterminate sentence and a lot of changes have been made to tighten up the sanctions that are available to us, as well as having more police on the ground and let's not forget, there are more police in Britain than there ever have been in the past. We've increased the number policemen by 14,000.

At the same time there are more community support officers. And every crime is a tragedy and a sadness and in particular, this crime has been a heinous crime. But let me also say that we're doing everything in our power, both with the numbers of police officers on the ground and neighbourhood policing, and at the same time, let me also say, tougher sentences where that is necessary.

JON SOPEL: Prime Minister, let's talk about another perception, the perception is that you lied to the British people over whether there was going to be a referendum on the new EU Treaty.

GORDON BROWN: That's just not true. What happened was that the Treaty became a completely different amended treaty. We won all our red lines, and every other country in Europe that was planning a referendum, except Ireland has cancelled their plan for a referendum. The actual starting words of the constitutional so called, constitutional treaty says, the constitutional concept has been abandoned.

JON SOPEL: What do you say then, what is the harm in giving people a referendum.

GORDON BROWN: Because, at the end of the day, the changes that have been made are not of the fundamental nature that people have both claimed and people thought might happen - two or three years ago.

JON SOPEL: But why not let people decide.

GORDON BROWN: Look we've won, we've won on the Charter of Rights what we wanted which is essentially, it's not just a civilian British law.

JON SOPEL: I know the argument.

GORDON BROWN: We've, we've got an opt-out on the - and indeed an opt-in in some cases on Justice and Home Affairs, so all our red lines have been, have been achieved. Now, you only have a referendum where there's a fundamental constitutional issue at stake. Now, I don't believe this is as fundamental constitutional issue and parliament is debating it in great detail at the moment.

JON SOPEL: A majority of people have said that they would like a referendum on it, what is the harm in having one.

GORDON BROWN: My point of view is if - if you have referendums, or referenda as I should say, they're for fundamental constitutional issues. What is the issue at stake here, we won our red lines and therefore prevented what people might have thought were fundamental changes happening. At the same time, we have an amending treaty, which in every other country of Europe except Ireland, is not now subject to a referenda, where they were used - where they were previously thinking of having referenda.

JON SOPEL: And there's going to be a President of the European Union, I don't know whether you've had a chance to see Tony Blair here today, because he's co-chairing this. Would you welcome him as the new President of (interjection)

GORDON BROWN: Well, I've said before I think on many occasion, ¿ Tony Blair would be an excellent President. I don't know whether he wants the job and I (interjection)

BOTH TOGETHER

GORDON BROWN: ¿ it's really a, it's really a matter for - well he hasn't, he hasn't said, has he. He hasn't said to anybody whether he wants the job or not and it really is a matter for the future. It's not a, it's not a matter just for me.

JON SOPEL: But you would welcome it and would you act together ¿ It's not his decision, it's the Leaders of the EU

GORDON BROWN: Well I've said, I said that on many times before actually.

JON SOPEL: Okay. Just final thoughts really on your style of management of the government and this word dither keeps on coming up about (interjection)

GORDON BROWN: No, I think, I think it comes from the Conservative party actually.

JON SOPEL: Well,

BOTH TOGETHER

JON SOPEL: the press as well. All the foreign commentators have made

(interjection)

GORDON BROWN: I think the decisions that I've made and the biggest changes that I've made since I came in are, show a level of resolution about the changes we've got to make for Britain as a whole.

JON SOPEL: We counted up, and it's maybe a conservative estimate, fifty nine reviews and enquires. Twenty one of these are independent reviews, commissioned by the Government and headed by an independent expert chairman. People will say that's

BOTH TOGETHER

JON SOPEL: kicking things in to long grass.

GORDON BROWN: No, Jon, that is just nonsense. If you've got a problem, what is the best way of dealing with some of the problems, to consult the public, or to listen to what expert opinion is and to hear what the public and others have to say. And if there are issues to be dealt with, it's right. I mean, you would be complaining if we didn't consult the public, you would, you've just been complaining actually about a referendum not happening.

You'd be complaining if we didn't review things, in a systematic way, and if we didn't consult the public properly. We have tried to look at a whole range of issues in a new way. I said, when I started off this job, I wanted to reach out to people. I actually wanted to recognize the decisions in this country that ¿ made for the future, cannot really be made unless you involve the people in the making of them.

And that's why I did say on housing and health and education, we'd have far better forms of consultation for the future. And that's why we've done some of the reviews that are happening, and that's why I think it's a good form of government, it's nothing, it's nothing to do with indecisiveness, it's actually about helping people contribute to the decision making process.

JON SOPEL: Okay. And I'm sure you envisaged what it would be like to be Prime Minister, but six, seven months on, are there bits of it that have been more difficult than you'd imagined.

GORDON BROWN: It's the best job in the world. It's, it's the most challenging job because every day there's something new. Sometimes things that you don't expect. And there's a great deal of satisfaction in trying to help people in different ways and not just on the economy as I used to do, but on a whole range of other areas, so I would say that I've been fortunate enough to be given the chance to do what I think is the best job in the world.

JON SOPEL: And the worse bits.

GORDON BROWN: Er, the worse bits are actually relatively small in relation to the good things. The good things are you have this unique chance, given a tenure to make a difference, and you've got to use it to the best of your ability. My, my father used to say, if you've got a, if you've got a talent, make sure you try and use it to the best of your ability and I hope people will see that I used my time and my energy to try to make a difference, to make Britain a better place.

JON SOPEL: Prime Minister, thank you very much indeed.

END OF INTERVIEW WITH GORDON BROWN

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The Politics Show Sunday 27 January 2008 at 12:00 GMT on BBC One.

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